'Challenging' Year Seen for Industry

Although indicators such as the yield curve point to a V-shaped recovery, Riggs openly wonders if the economy is in for a W-shaped ride. He concedes the report he published in the wake of the Sept. 11 terrorist attacks was, in hindsight, "too optimistic."

"2002 will be one of the more challenging years in our industry since 1993," says Riggs, more bearish than he was in December. "A lot of things in our economy just haven't played out yet."

Riggs warned the Chicago Real Estate Council Wednesday to watch the consumer for any signs of lagging confidence, as well as corporate earnings. "You've got to have corporate earnings," Riggs insists. "This is the starting point for everything to happen, and this applies to real estate, too."

The problem with corporate earnings, though, is how to figure them in the wake of the Enron debacle that has called accounting practices into question. With Enron at the top, Riggs notes, the past year has seen the five largest bankruptcies in history.

"The only thing propping up the whole economy right now is the housing market and the consumers," Riggs says. However, a corporate earnings slide could take the consumer, who accounts for two-thirds of the economy, down with it, he warns.

People still need a place to live, work and play, Riggs says, which bodes well for commercial real estate long term. "Commercial real estate presents one of the best risk-reward opportunities than any other asset," Riggs says. "I don't think we've over-committed on what we can deliver."

However, Riggs offers specifics. Top opportunities, he says, will be found in "re-priced" class-A multifamily rental buildings, class-A or A-minus office buildings in tech-battered central business districts and good-credit leased properties. On the other hand, he would avoid hotels, especially luxury downtown and convention properties in major cities, as well as high-rise trophy office towers.

With low interest rates, Riggs recommends leveraging 100%-equity assets. Meanwhile, he fears for those providing mezzanine capital. "There are too many players taking a risk they shouldn't," he says.